Deduction under Section 80P held available for bank interest deemed attributable to cooperative society's business income.

Whether bank interest received by a cooperative credit society is deductible under section 80P(2)(a)(i) was decided by treating the interest as attributable to profits and gains of business; the Tribunal applied precedent holdings of the High Court that similar bank interest qualifies as business income and noted absence of any contrary overruling or AO finding that the receipts were income from other sources, and therefore allowed the deduction to the assessee to that extent.

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Issues: Whether the assessee is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of interest of Rs. 17,64,987/- received from nationalized banks, the same being attributable to profits and gains of business.

Analysis: The assessee, a co-operative society carrying on credit business to members, treated bank interest as business income and claimed deduction under section 80P(2)(a)(i). The assessing authority and the lower appellate authority held the interest taxable as income from other sources and denied deduction. The Tribunal noted decisions of the Karnataka High Court (including Tumkur Merchants Souharda Credit Cooperative Ltd. and Totgars Co-Operative Sale Society Ltd.) holding similar interest to be attributable to business and eligible for deduction under section 80P(2)(a)(i), and observed that these decisions have not been overruled by a larger bench of the Karnataka High Court or by the Supreme Court. The subsequent Karnataka High Court decision distinguishing those precedents concerned section 80P(2)(d) and does not negate the earlier High Court rulings relied upon by the assessee. The Tribunal also noted absence of any finding by the assessing officer that the interest was chargeable under the head "income from other sources" rather than business income.

Conclusion: The assessee is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of the interest income of Rs. 17,64,987/- received from nationalized banks, as such interest is attributable to the profits and gains of the assessee's business. The appeal is partly allowed to this extent.

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